Soon after the Senate passed a bill in March that would benefit most U.S. banks, the people of Montana started seeing a new commercial on their TVs. The American Bankers Association—pleased with the bill—paid for an ad in support of Sen. Jon Tester, a Montana Democrat, who voted for it.

The ad features three Montanans, identified as “community bankers,” praising Tester for having “put aside politics” to “cut red tape.” Their closing pitch: “That’s leadership. That’s courage. That’s Jon Tester.”

But what some call cutting red tape, others see as shredding smart economic protections for Americans in favor of clearing the way for banks to increase their billions in profits.


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Tester and 15 other Democrats joined Senate Republicans to approve, 67-31, the bill: the Economic Growth, Regulatory Relief, and Consumer Protection Act. It eases rules and oversight for all but 13 big U.S. financial institutions that were put into place in 2010 to prevent another money meltdown like the Great Recession.

Proponents say that the 2010 restrictions have been hurting community banks. Critics say relaxing current rules unnecessarily increases America’s risk of another disastrous recession.

How Senators voted—in an effort that was hailed as a win for bipartisanship—depended on their political party and their state. Whether they are running for reelection this year, like Tester, may also have been a factor. Of the 16 Democratic Senators who voted yes, nine are currently campaigning.

The process has generated lavish lobbying expenditures and campaign contributions by the nation’s largest banks and many smaller financial institutions. In the 2018 election cycle so far, commercial banks and credit unions have made a total of $15.9 million in campaign contributions, according to the Center for Responsible Politics’ Open Secrets database.

On May 22, the House approved the Senate bill. President Trump signed it into law on May 24. Whether it will be helpful or harmful is debatable. What is certain: This is all happening at a time when the country is overdue for its next recession. And Congress might have just made it worse.

These U.S. Banks Benefit From New Law

The law relaxes regulations enacted under the Dodd-Frank Wall Street Reform and Consumer Protection Act for 26 banks and other financial institutions with assets between $50 billion and $250 billion. These include powerful multistate banks such as BB&T and SunTrust. That would leave stricter controls by Federal Reserve regulators on only the biggest institutions—in other words, those considered “too big to fail”—with more than $250 billion in assets.

Tester and his Senate allies say that Dodd-Frank has hurt small banks and credit unions. They maintain their new legislation still holds the most powerful on Wall Street accountable, while offering relief to community financial institutions so they can lend more freely and approve more home mortgages. This deregulation, they argue, will actually be a financial win for, as the ABA’s Tester ad proclaims, “ranchers, farmers and families.”

“ABA believes that policymakers must move away from one-size-fits-all regulation to tailored regulation that corresponds to a bank’s charter, business model, geography and risk profile,” the bankers group states on its website. “This policymaking approach avoids the negative economic consequences of burdensome, unsuitable and inefficient bank regulation.”

According to Emily Leite, vice president for government affairs of the Ohio Credit Union League, which represents nearly 300 credit unions and their almost 3 million members in Ohio and which has advocated strongly for Dodd-Frank reform, additional paperwork required by the 2010 regulations has resulted in a one-hour review of loan applications that previously required only 10 or 15 minutes of handling.

What’s in a 45-minute difference? Liberal Democrats, consumer groups and some economists warn that, among other things, a risk of repeating the last meltdown-style recession.

Barney Frank, co-sponsor of the legislation that Republicans have aimed to overthrow since it was passed, is now retired but the congressman has acknowledged that he thinks the $50 billion threshold in Dodd-Frank was too low. However, in March, he said he favors raising that to $125 billion, not $250 billion. That level would still keep some big regional banks under check.

In many ways, this easing of rules is part of a familiar game across the world. In January, economist Jihad Dagher described this pattern in a working paper for the International Monetary Fund: Governments introduce strict regulations following financial crises. Then a few years later, they roll them back, often resulting in renewed economic risks. “History suggests that politics can be the undoing of macro-prudential regulations,” Dagher wrote.

The Congressional Budget Office likewise warned that the probability of a financial crisis “would be slightly greater under the legislation.” A repeat of the earlier financial failures the country saw in 2008 would result in “very large” costs for federal bank insurance funds, CBO warned.

How Banks Wielded Their Influence

Consumer watchdogs and other liberal interest groups caustically referred to the bill as the “Bank Lobbyists Act.”

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“The Senate bill has significant problems and could have been more carefully written,” says Yana Miles, senior legislative counsel for the Center for Responsible Lending, a North Carolina-based group that joined other consumer groups in opposing the measure. “We oppose any effort to use regulatory relief for community banks and credit unions as a vehicle for larger financial institutions to avoid having the regulatory scrutiny and oversight that proved lacking in the buildup to the financial crisis,” the Center wrote in a letter sent to all Senators.

Richer proponents of Dodd-Frank reform preferred to send cash—in a manner that inspired The Intercept in March in a report about the legislation to write “lobbyists have rushed to stuff the trunk of the vehicle full.”

In 2015-2016, the commercial banks contributed nearly $44 million to federal candidates. Last year, they handed over another $14 million. In each campaign cycle, Republicans have received nearly twice as much funds as Democrats. In addition, those big banks last year reported $67 million in lobbying expenditures, according to the Open Secrets database.

The latest campaign finance data have a revealing twist, much like that Tester ad in Montana. The three senators who last year received the largest contributions from the big banks were all Democrats: Heidi Heitkamp of North Dakota, Joe Donnelly of Indiana and Tester. Not coincidentally, all three sit on the Senate Banking, Housing and Urban Affairs Committee, where each was an active supporter of the bill to weaken the banking law. They also all face difficult and expensive reelection contests this November, where those donations from bankers will be useful. They surely don’t want to risk those donations going to opponents. Tester is running for reelection in a state that Donald Trump won by 20 percent in 2016.

Like Republican supporters of the bill, these and other Democrats emphasize that they are responding to the needs of local neighborhood banks. But opponents are less sanguine. “Some of these changes [to Dodd-Frank] might result in a return to the apocalypse,” Miles says.

Whatever the risk assessment, local banks, neighborhood credit unions and powerful international banks with tens of billions of dollars in assets have successfully wielded their influence in Congress to weaken financial regulations.

“An army of bank lobbyists…swear up and down that they are fighting for small banks—banks that aren’t risky and didn’t cause the financial crisis—and they will make up all sorts of false claims about how the banks are struggling under new rules, never mind that banks of all sizes are literally making record-breaking profits. Give me a break,” Sen. Elizabeth Warren of Massachusetts told the Senate in March. (Warren was a leading architect and advocate of the 2010 banking reforms, as a senior aide at the time to President Barack Obama.)

Warren’s skepticism about how much banks need our help got backup on the same day in May that the House approved (with 33 Democrats on board) the Dodd-Frank rollback.

A federal agency, the Federal Deposit Insurance Corporation, reported that U.S. banking overall had seen a 27.5 percent increase in net income from early 2017 to early 2018 (to $56 billion). Further, community banks posted a net income increase of 17.7 percent during that same period.

The banks had two wins to celebrate and very good reason to remain optimistic: Momentum points to more rollbacks to come that will benefit them. They’ll surely continue to spend to weaken Dodd-Frank safeties, including the Consumer Financial Protection Bureau, an agency created through the 2010 legislation. After all, there’s a payoff. Take it from Mick Mulvaney, who’s currently in charge at CFPB. “We had a hierarchy in my office in Congress,” Mulvaney, who was once a U.S. representative for South Carolina, told a room of bankers in an April speech. “If you’re a lobbyist who never gave us money, I didn’t talk to you. If you’re a lobbyist who gave us money, I might talk to you.”